If you identify as an entrepreneur and want to nurture your skill with the tag of a market leader, starting a franchise business may be the right option for you to explore. Numerous brands, belonging to diverse industries, have franchising operations now. Some of these brands include the likes of:
- Burger King – Fast food
- Ace Hardware Stores – Hardware
- Super 8 – Hotel chains
- Meineke Car Care Center – Repair shops
- Jackson Hewitt – Tax Consulting
- Great Clips Hair Care – Hair Salons
- Jiffy Lube – Automotive
- Jazzercise Inc. – Fitness and Exercise
Among all, fast food remains on top of franchising opportunities. As per the latest statistics of the International Franchise Association, there are more than the 400,000 franchises exist in various locations in the U.S., covering about 75 different industries, which altogether employs more than 10 million people. More than 2500 top companies have an open call for franchising at various regions of the country and also globally.
What is a business franchise?
Franchising is a legal and commercial association between a trademark owner in a particular niche (the franchisor) and a regional organization or individual (franchisee) to use the identification of business. The franchise terms govern the mode of operations by a franchisee. In typical cases, the franchisee sells goods as supplied by the franchisor, or offer services by meeting the quality standards of the franchisor. You can simply think of franchising as paying for the efforts someone else had already put in to develop a successful business model, marketing strategy, client base, and recognizable operational efficiency.
Franchise business is largely lot popular now with its proven track record, and the ease for an investor to become a successful entrepreneur. The rate of success in a franchise business is higher than that of starting an independent business. However, there is no guaranteed success. In fact, you can see that 8 out of 10 franchises reported a profit last year. Gartner finds that every 40 cents out of a dollar spent by the consumers are going into the franchised businesses.
How to find the right franchise?
You are advised to do intense research to find a franchising opportunity that is good for you. Once you identify your area of interest and expertise, decide how much you want to invest into the business. Initial fees for franchising may range from $1,000 to $200,000 alongside the other start-up costs such as real estate, construction, equipment, etc. The average royalty to be paid by the franchisee to the franchisor may range from 3 to 6 percent of the monthly gross amount. The length of franchising contracts is usually ten years. Once you find considerable franchising opportunities, interview existing franchise owners of the brand, and find out the scope, cost, and support etc.
Is franchising the right option for you?
Visit any city in the US and you will see franchised businesses thriving at the streets. Franchisees that are lined up under one trademark can make more collective achievement through group advertising, brand establishment, and more buying power. As an investor, you need to ask some questions before getting into a franchise business.
- Are you ready to take up the responsibilities of managing a business?
Along with doing external research to identify good franchising opportunities, you also need to do an unbiased self-analysis to determine if your personal house is in good order to mange it. Of course, the well-established franchise system can give you start-up training and assistance, but as an administrator, you should be well prepared. Your interest, knowledge, commitment, experience in the particular niche and client handling skills play a vital role.
- Are you willing to follow the franchise system?
Another major factor ruling franchise business is the consistency of a product or service customers expect from one franchise to another. If you are an avidly entrepreneurial type and don’t like to conform to a predetermined formula, you should restrain from franchise business.
- Have you managed to dealing with people?
All franchised businesses are maintained on relations. So, your ability to interact positively with the franchisor, other franchisees, employees, and most importantly, the consumers is essential in franchising business success.
- Can you afford?
Under-capitalization is the major cause of business failure. So, before getting into a franchise deal, check if you can afford the franchising fee, set up cost, monthly royalty to be paid.
- Do you know all legal terms?
You will be receiving some legal documents as franchise disclosure document, franchise agreement, etc. with all terms and conditions mentioned. You need to learn carefully this and clarify doubts to decide whether these possess any negative impact on your future. You can take the assistance of an attorney for this if needed.
Pros and cons of buying a franchise:
Many people take franchising as a shortcut to business success. There is some truth in it, but this is not always the case. Here are some pros and cons:
– Pros –
- Better success rate
While buying a franchise, you are choosing an already established brand. From the day one onwards, people recognize you. On the other hand, an independent business stands only 20% to 30% chance to survive in the first few crucial years, whereas franchisees have an 80% chance of surviving.
- Instant start-up solutions
Most of the established franchises are turnkey solutions. The franchisor can offer you all needed equipment, supplies, and training to the staff. You also get ongoing support in business management and marketing from established franchisers.
- Purchasing power
The individual franchise may also benefit from the collective buying power of the franchisor as your parent company can afford to buy goods in bulk and share the savings with the franchisees. The inventory and supplies will also cost lesser in the franchise model.
– Cons –
1) Do it only their way
The major disadvantage of franchising business is that you don’t have anything to innovate. You aren’t the one running the show in franchisees, and some franchisers also may exert an intolerable degree of control, which you may hate.
2) Higher investment
Capital is always a concern when you plan to step into a new business. Franchising with some well-known brands is highly expensive. The typical cost of franchising may be 70% to 80% or higher than establishing an independent business.
3) Ongoing cost
Apart from the start-up fee, you also have to pay off the royalties and a certain percentage of your business revenue to the franchisor every month. There is also a chance that the franchisor may charge extra for add-on services provided as the cost of marketing etc.
When it comes to deciding whether or not to buy a franchise, you have to take a very personalized approach to weighing the pros and cons. Those who are opting for franchising, here are the top 10 rated franchise options in various sectors.
# 1 Midprice hotels – Hampton by Hilton – Investment: $3.8M – $14.1M
# 2 Fitness centers – Anytime Fitness – Investment: $63K – $418K
# 3 Subs & salads – Subway – Investment: $117K – $263K
# 4 Burgers – Jack in the Box – Investment: $1.3M – $2.4M
# 5 Hair salon – Supercuts – Investment: $144K – $294K
# 6 Sandwiches – Jimmy John’s Sandwiches –Investment: $323K – $544K
# 7 Insurance/disaster restoration – Servpro – Investment: $142K – $191K
# 8 Family restaurant – Denny’s Inc. – Investment: $1.2M – $2.1M
# 9 Pizza, pasta – Pizza Hut Inc. – Investment: $297K – $2.1M
# 10 Convenience store – 7-Eleven Inc. – Investment: $200K – $1.5M
So, carry out your research, and make sure you take a well thought-out decision before making any significant investment. Good luck!